Dealing with Sudden Money

Once in a while people may come across significant sums of money unexpectedly i.e. sudden money. This seems like a problem most of us would like to have right?   This could be an inheritance, an insurance pay out, a larger than usual bonus, a retirement or retrenchment package, the fruits of a business transaction that are finally paying off, sale of an investment etc. More often than not, people are not prepared to handle access to such large sums of money and usually end up doing the wrong thing with it. We get very excited very quickly.   The unfortunate outcome has sometimes been that we end up losing the money. So how do we manage this windfall so we can get the best possible outcome?  Firstly understand that no matter how large the amount may seem to you, it can get finished.   When we suddenly have funds that our bank account has never seen, we may start thinking that we are invincible. This is similar to how people act in December when they get paid their salary quite early.  For most of us our tendency is to see how to spend it even though we know we should be thinking about investing it. It looks like a lot of money and being rational can always be done tomorrow. Since we cannot see the end of the money, we start doing things like spending without thinking, buying things we have never wanted, giving a lot of money away, getting new and expensive habits that cannot be sustained, acquiring new friends who are too willing to help spend money. We start feeling elevated in status because of the new figure in our bank account, and to get the things and do the actions that prove our new status. The problem is that these are the very same actions that will ensure that this windfall does not grow or last. Some of these actions could even be rushing to invest without thinking. The world is never going to run out of places to spend money on.  We need to understand that a period of transition is needed.  We are simply not used to thinking in large sums hence the emotional reactions.  A billionaire after all is used to thinking in billions and transacting in billions. You may not yet be ready for the some of money you have received so you need a cooling off phase so that you can get accustomed to thinking at the level of the money you have acquired. So is it possible to cool off while the money is in your bank account? Absolutely not. Move the money to somewhere safe i.e. where the capital will be preserved.  If you put 10 million shillings in you get 10 million shillings out.  You could use a treasury bill, a money market fund, and a fixed deposit.  These are fairly liquid instruments and money will be kept safe.  Your money will still be accessible to you but not to the level that you can easily withdraw on a whim as you pass your favourite shop in the mall. This move will simply give you time to think.

As you are thinking refrain from shouting the good news to the whole world, who will happily want to give you advice on how to spend it or how they can become the beneficiary of it.  Whatever decision you arrive at, you do not want to feel you were influenced by others. Even if the sum of money is very significant e.g. through inheritance, it is not the time to quit your regular job no matter how much you feel you no longer need it. Remember this windfall is one off and does not replace your need for a regular income for day-to-day expenses. You will get into problems if you start using this money for your basic expenses. It is also best to continue with your normal routine and use this time to do your planning and research.  Assemble people who you think can offer you concrete and objective advice.  I suggest as much as possible, use people who do not have a vested interest in selling you a particular financial product.  You will need to come out with a concrete plan and objectives for this money, even to be able to hear the right advice and know where to get it from. What do you want money to eventually do for you?  The answer to that question is what will provide the balance between what you decide to splurge on now and how you want to invest.  Many of the people I have worked with have usually come to the decision to use this windfall as a stepping-stone to financial security.  They were therefore able to see that they either needed to keep growing the money or invest it in a way that those funds generate sustainable income for them.  In other words what is the end game for you?  The answer to this can be quite humbling and you may realise that you actually still need a lot more than you have.  Expose yourself to people who are used to dealing with the kind of money you now have access to.  Understand that your regular social circles may not necessarily be the ones with the best advice for you at this stage.

In summary if you do receive sudden money remember it can get finished, remove it from your bank account, stick to your normal routine ad take time to plan. Let this unexpected money end up helping you take leaps forward and not backwards.